It’s interesting how something so minor can make or break our plans. The same theory applies to mortgage rates; a small percentage can allow or prevent an individual from purchasing a house. Rising mortgage rates can crush a dream, so knowing how the current mortgage rate can impact your life as a home buyer is vital.
One of the most crucial factors affecting an individual’s exact mortgage rate is their finances, such as their credit score and history, along with the amount of down payment. Other than personal factors, external factors can impact the current rates, such as inflation and overall economic growth.
Inflation Impacts Mortgage Rates
Inflation is an increase in the price of goods/services; it can negatively affect individuals, impacting our basic needs and ability to enjoy entertainment. Understanding that inflation affects home loans and lenders’ ability to provide mortgages is vital. It’s suggested that you keep an eye on the current price of items and the local economy before purchasing a house.
Growth Within The Economy
It’s evident that with financial growth comes the comfort of spending money. If the economy is experiencing positive growth and employment rates are up, individuals are more likely to apply for a loan and have a higher chance of the lender approving the mortgage. With a tight economy, homeowners are less likely to sell and buy homes and stay in their current situation until things change financially.
Ways High Rates Affect the Housing Market
There are a few ways high mortgage rates impact the current housing market; some of these examples include:
- There has been a slowdown in selling and purchasing property. High interest rates have resulted in a rise in the overall cost of owning a home. Expensive home ownership can reduce demand, negatively affecting the market.
- Higher rates can directly result in fewer interested buyers, leaving properties to sit on the real estate market longer or forcing the seller to accept less than the home is worth.
- When homeowners can’t afford the monthly mortgage payment, their interest level and ability to purchase the home is significantly impacted, leading to a cooling housing market.
- A homebuyer may qualify for a lower loan if interest rates are lower. A pre-approval is based on two main factors: the downpayment amount and an affordable monthly payment based on the debt-to-income ratio. So, if the monthly interest rate is higher, the total loan amount will be reduced.
Effects of Increased Home Interest Rates on Realtors
Some individuals may believe that only home buyers and property sellers are affected by higher interest rates, but that is simply not true. Real estate agents also feel the short—and long-term effects of increased interest rates.
Due to the high rates, some buyers are withdrawing from their home search, waiting for a decrease in rates, which is costing buyers’ agents potential deals. Sellers are aware of the fewer potential buyers, so the individuals who can wait may decide to go that route. The effects on the housing market may make it difficult for newer agents to survive in this unpredictable industry.
How to Determine Monthly Mortgage Rates
Knowing the equation to calculate your monthly mortgage payment is essential. Many assume they will qualify and can afford a mortgage without considering the factors involved. The factors include the exact amount of the loan, the interest rate percentage, loan terms, and the overall type of loan/mortgage. The best way to determine the amount for each monthly mortgage payment is to complete the complex math below.
M = P[r(1+r)^n]/[(1+r)^n-1]
M = monthly mortgage payment
P = principal loan amount
r = monthly interest rate
n = number of payments
Fortunately, you don’t have to tackle this complex math alone. You can use an online mortgage calculator or a spreadsheet to input these values and find your estimated monthly mortgage payment.
If you prefer working with a human, choosing a licensed realtor or mortgage lender to discuss the equation and possibly homebuying options is recommended. Remember, some other costs and expenses come with buying a house, such as yearly property taxes and homeowners insurance.
Current & Future Mortgage Rates
The overall mortgage rate tends to fluctuate depending on factors such as the current economy and the country’s overall spending. There are two standard mortgage periods: fifteen-year and thirty-year mortgages. The standard 30-year mortgage has recently risen to around 6.5 percent, with refinance floating around the same number. Some experts predict that mortgage rates will decrease due to lower inflation and general elections.
Guidance With Mortgages
Before deciding to purchase a house, it’s essential to understand how mortgage rates work, including the math involved, to determine the exact amount. Most homebuyers explore utilizing a real estate agent and mortgage company to provide proper guidance.
Personal factors, such as credit score, down payment, and annual income, contribute to the mortgage rate that would be quoted. The other factors out of our control will be the current economy, stock market, and unemployment rates. The reality is that a higher rate can lead to potential homeowners falling short of purchasing their dream homes. The best advice is to continue to improve your credit score/history and shop around the mortgage quotes with numerous banks/lenders. Lastly, always work with a professional to ensure the process is proper because purchasing property and accepting a mortgage can be risky and have consequences.